Implications:FMN’s 2018 PBT surprised negatively relative to consensus 2018 PBT forecast of N22.8bn. As such, we expect to see downward revisions to consensus 2019E PBT forecast and a negative reaction by the market. In terms of outlook, Bloomberg consensus wheat forecasts indicate that wheat prices which form the bulk of FMN’s inputs are expected to rise by only c.5% between 2018 and Q1 2019 (end-March).

Although the company is exposed to a downside risk from a potential slide in the naira relative to other major currencies, we believe the likelihood of this is remote given the prevailing price levels of crude oil and improved crude oil production levels relative to 2016/2017 levels.

Positives:No obvious positives

Negatives:Sales down -14% y/y. FMN reported a pre-tax loss of –N3.0bn (which came in lower than ours and consensus implied Q4 2018 forecasts of N667m and N3.3bn respectively). The weak earnings were driven mainly by a -96% y/y reduction in other operating income. Compared with our forecasts, Q4 sales missed by 21%. PBT and PAT also came in behind our N667m and N393m forecasts due to a negative surprise in interest expense. Although almost all the major divisions saw marked y/y reduction in sales, the foods business which declined by -27% y/y was the key driver behind the y/y decline in sales in Q4.